How much is Groupon worth?

Local, Product

Groupon is going public, soon… and the valuation projections vary up to $20 billion. I don’t think Groupon will sustain this growth and valuation by depending only on their existing model. It has to evolve (and from the registration documents it is clear that they are working on it). What I would do: Offer programs, instead of one-off discount promotions.

Current business model of Groupon is tricky and remarkable at the same time. It is tricky because it relies on people who look for deep discounts (opportunity seekers), business owners who look for long term customers so that they can make money with repeat sales (relationship seekers), and the staff/employees that are not compensated extra if there is a spike on sales with one offer and then nothing happens (overwhelmed staff). Classic tragedy.

However, it is so remarkable with another two brilliant ideas; there needs to be a volume commitment to make the offer active which basically tells you to share the offer with others (this was missing on the previous models – see woot.com). Second, Groupon uses localization perfectly, meaning users get more relevant offers – which is still a debate. Based on a Facebook survey on coupon users in general (groupon and living social users mainly), contributors were stating that most of the buyers agree that they didn’t need the product/service at the time, but it was so cheap, they couldn’t resist. So, relevancy is not necessarily there, but this business model is a great appeal to human emotions for sure (combination of ‘impulse buyers’, ‘bottom fishers’, spontaneous persona ‘as Bryan Eisenberg would put it’ including me)

So it is a great debate how much Groupon would worth. I agree with Chris that the Groupon business model is not solid to convince investors $20, maybe not even $10 billion valuation, but I think there is a strategic move that Groupon can take to solidify its market share and valuation: Offer programs, instead of one-off discount promotions. That requires Groupon to share some information of their members with all vendors and have them create their own programs based on customer behavior. This is where Facebook shines now and Groupon can be a e-commerce version of Facebook. It is not about how much revenue you make, or how many transactions, or even how many vendors you work with, it is about subscribers. Not just subscriber number, it is all about how subscribers behave, how they respond to certain deals, and what they buy… meaning it is all about data! and how to make the most value out of it without breaking the law of course. So, Groupon can create the platform for any business (they are expanding to travel and entertainment verticals) to create their own programs and test, optimize, not just with one shot but with engaging interactions.

In any case, it will be such a competition with Google and Facebook getting into first digital wallet and at the same time to coupon business. So, what do you think about Groupons’ worth and their business model?

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